Wisconsin Supreme Court Clarifies Required Assessment Methodology For Section 42 Housing

The Wisconsin Supreme Court recently rejected the city of Racine's property tax assessments in Regency West Apartments LLC v. City of Racine, 2016 WI 99, clarifying in important respects the appropriate assessment methodology for I.R.C. § 42 low-income housing tax credit properties.

Regency West concerned the 2012 and 2013 assessments of a newly constructed 72-unit Section 42 housing development. For 2012 (the first tax year following completion of construction), the city assessed the property at $4,425,000, using the direct capitalization of income approach. This approach divides the property's net operating income (NOI) by the applicable capitalization rate. Established case law requires assessors to use the subject property's actual income and expenses, not market rates, when assessing properties subject to federal programs like Section 42. See Metro. Holding Co. v. Bd. of Review of City of Milwaukee, 173 Wis. 2d 626, 631-32, 495 N.W.2d 314 (1993). Because Regency